Dear Reader,
Tesla, the electric vehicle manufacturer, recently announced that it has bought 1.5 billion USD in Bitcoin and that it has changed its investment policy so it can invest in Bitcoin to increase the return on the cash and cash equivalents it holds.
Tesla is now valued at 783.36 billion USD by public markets. How is Tesla's Bitcoin investment going to affect Tesla's market capitalization? First, I have to say that Tesla, with its current market capitalization of 783.36 billion USD, is grossly overvalued. I estimate Tesla is not worth more than 120 billion USD in the long run.
To justify its current valuation Tesla has to take over 80 % of the automobile market and to exhibit profitability like boutique sports car producers like Ferrari. Simply, this is a farfetched assumption. I do not believe Tesla has such an edge to achieve such a market share in the automobile market. And producing cars is characterized with notoriously low net profit margins.
Tesla's investment in cryptocurrencies will do little to alleviate its current overvaluation. Tesla's 1.5 billion USD investment in Bitcoin is simply dwarfed by its 783.36 USD billion market capitalization. Even if Tesla triples its cryptocurrency investment it will win 3 billion USD, which is still a lot, but not much compared to the cash company burns to finance its growth.
Tesla is also contemplating accepting Bitcoin as payment for its cars. This, actually can change things, because Tesla made 31.5 billion USD in revenue in 2020. If the price of Bitcoin and cryptocurrencies shoots up in the short term, Tesla could make significant gains on its revenue proceeds. If Tesla makes let's say 40 billion USD in revenue in 2021 and the price of Bitcoin doubles in the next 1.5 years, Tesla could probably make 27 billion USD profit on its cryptocurrency revenues, because it also needs to cover its costs. If that scenario turns out to be true, this could raise my estimate of Tesla's intrinsic value to 170 billion USD in the long-term.
However, if Bitcoin crashes Tesla's cryptocurrency strategy could burn the company heavily.
All in all, I estimate Tesla's intrinsic value currently stands at 120 billion USD. Tesla's cryptocurrency investment, though, is an optional swing factor that can raise that estimate. That premise hinges on the future adoption and price movement of Bitcoin.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
No comments:
Post a Comment